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Indonesia: innovative and sustainable technologies are helping the agroindustry grow

Originally published in Forship News & Media

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Agroindustry is still the backbone of the economy

Indonesia stretches over 1.9 million square miles of land and has an estimated 269 million inhabitants in 2019. It is the 15thlargest and 4thmost populous country in the world with vast fertile soils that have the capacity to produce a wide array of products. Some of the most important commodities in the Indonesian agroindustry are palm oil, natural rubber, cocoa, coffee, tea, cassava, rice and spices.

Agriculture plays a crucial role in the Indonesian economy. It accounts for a third of the land, approximately a fifth of GDP, and generates almost half of total employment in the country. GDP from agriculture in Indonesia averaged US$ 4.865 billion from 2010 until 2018, and helped the economy expand by 5.2% year-on-year over the first three quarters of 2018.

Despite critical weather conditions such as the 2014-16 El Niño and the 2016 La Niña phenomena that caused droughts and wildfires and destroyed large amounts of crops, the agricultural sector remains fundamental to the Indonesian economy and way of life.

The agroindustry is closely linked to economic development. Business-friendly regulations, new technology in food production and global demand for products such as palm oil are incentivising investment. In fact, in the first half of 2018, domestic investment in the agroindustry reached US$1.7 billion and foreign investment exceeded US$1 billion. The Indonesia Industry Ministry has predicted that the agroindustry will grow by 7.1% in 2019, compared with 6.93% in 2018.

World’s largest palm oil exporter

According to the Economic Complexity Index, Indonesia is the 25thlargest export economy in the world. In 2017, animal and vegetable fats and oils made up 14 percent of the country’s exports at a value of US$23 billion.

Indonesia is also the world’s biggest palm oil exporter, transporting US$18.5 billion worth of the commodity abroad in 2017. The Indonesian Palm Oil Association has in fact announced that palm oil exports increased by 8 percent between 2017 and 2018 and are expected to increase an additional 5% in 2019.

Palm oil is by far the agroindustry’s largest contributor to GDP. According to the Ministry of Environment and Forestry, the industry employs as many as 8.4 million people in the country and massively exports to countries such as China, India, Pakistan, Malaysia and the Netherlands.

The commodity is used in processed foods such as bread and ice cream as well as cosmetics, and global demand for the product keeps increasing. There are however significant concerns about the effect palm oil production has on the environment, and many corporations have agreed to stop buying products linked to deforestation.

More environmentally friendly initiatives and technology

The growth of the agroindustry is closely associated with improving quality of life for Indonesians. A thriving agricultural sector and the widespread use of conventional farming have nevertheless led to significant deterioration of the environment through reduced biodiversity, high greenhouse gas emissions, soaring haze problems and forest fires.

With global corporations becoming more environmentally conscious, it is essential for Indonesia to innovate with green initiatives in order to continue to promote agricultural and economic development. In 2011 therefore, the Indonesian Sustainable Palm Oil (ISPO) was established in an aim to bring the production of palm oil under stricter environmental legislation whilst enhancing global competitiveness.

Through an increasing awareness of environmental problems, Indonesia is working to encourage sustainable and organic agricultural practices, pushing for traditional sustainable farming techniques and reducing the use of pesticides and fertilisers, to not only make farms more sustainable, but also more profitable.With the right collaboration between the government and private investors, there is great potential for reform and for the development of new agricultural technologies.